Fixed Price Project – Friend or Foe
Frank Mooney, PMPPresidentMooney Consulting Group, Inc.
Office: (727) 938-0067
MooneyConsultingGroup, Inc.M
“Let Our Management Experience Work For You!”
“Fixed Price projects are like jumping from a plane without a parachute… both have little chance of success .”
Comment made at a roundtable discussion
3
Introduction
• Project Management For Over 23 Years
• Director For An IT Consulting Firm For 12 Years
• Enterprise Technology Partners – Director, Management Consulting
• Work With Hundreds Of Companies
– Good, Bad and the Ugly
• Very Mature Best Practice Repository
4
Agenda
• Quick Facts
• Pricing – The Reality
• Fixed Price Strategy
• Summary
• Questions And Answers
5
Quick Facts… Projects Overall
• 9 Out Of 10 Projects Fail To Deliver Expected Results
• 4 Out Of 10 Fail To Deliver ANY Results
• Cost Of Business In Terms Of Time, Wasted Resources And Money… Enormous!!!
• Most Projects Optimistically Report Being On Time And On Budget – Until Reality Set In
• REALITY: Magnified For Fixed Price Projects!!!
6
Time and Materials vs. Fixed Price
• Time and Materials (T&M)
– Buyer agrees to pay a rate for time spent by the vendor to complete and deliver a set of products
– More likely well-defined… More successful
– Buyer has incentive to control scope… costs
• Fixed Price
– Vendor and buyer agree on a price the buyer will pay for a set of products that the vendor will produce and deliver
– Shift risk management to vendor… comes with a price!!!
– Little incentive to buyer to finish project
– Emphasis on cost not functionality
7
Top Reasons and Reality
• Unsure of Requirements
– How can you fix price what you do not know?????
– Fix Price requirements… first step
• Unload Responsibility
– Comes with a price
• Predict Costs
– What about Quality???
– Vendor worse case scenario
8
Typical Fixed Price Project Pricing Model
• Consists of Three Parts:
– Estimate
• Hours per resource per deliverable plus margin
– Fixed Price Premium
• Cost of taking responsibility… Don’t Know What I Don’t Know!!!!
• Average 25%
• NOT A CHANGE BUDGET… when to stop
– Assumptions/Risks
• Costs of potential risk to the project
• Priced individually
• Average (15%)
SUMMARY… WORSE CASE SCENARIO!!!
9
Potential Project Risks
1. Overall• New Technology• Functional Complexity• New vs. Replacement• Leverage on Company• Intensity of Business Need• Interface Existing Applications• Number of User Departments
2. People• Staff Availability• Commitment of Team• Team Morale• Applications Knowledge• Client IS Knowledge• Technical Skills Availability• Staff Conflicts• Senior Management Commitment• Project Manager Experience
3. Estimate Time & Costs• Quality of Information Available• Dependability on other projects• Conversion Difficulty• End-date Dictate• Conflict Resolution Mechanism• Continued Budget Availability• Project Standards Used
4. Break the Job Down• Large/Small Project• Size of Team• Geographic Dispersion• Reliability of Personnel• Availability of Support Organization• Availability of Champion• Project Manager Availability
5. Change Procedure• Vulnerability to Change• Stability of Business Area• Organizational Impact• Tight Time Frame• Turnover of Key People• Change Budget Accepted• Change Process Accepted• Charge Back System• Accountability for Change
6. Acceptance Criteria• Level of Client Commitment• Client Attitude toward IS• Readiness for Takeover• Client Design Participation• Client Participation in Acceptance• Client Proximity to IS• Acceptance Process
10
Typical Fixed Price Project Pricing Model - Example
Original Fixed Price Risk FinalEstimate Premium Premium Estimate
(25%) (15%)
Deliverable #1 $100,000 $25,000 $15,000 $140,000
Deliverable #2 $200,000 $50,000 $30,000 $280,000
Deliverable #3 $200,000 $50,000 $30,000 $280,000
Deliverable #4 $200,000 $50,000 $30,000 $280,000
Deliverable #5 $200,000 $50,000 $30,000 $280,000
Deliverable #6 $100,000 $25,000 $15,000 $140,000
Totals $1,000,000 $250,000 $150,000 $1,400,000
GOAL: Reduce Fixed Price and Risk Premiums
11
Fixed Price Strategy Flow
Definition Discovery Start-up Execution Closure
Supporting Processes/Templates
RFP TemplateRFP Checklist
Fixed Price ChecklistVendor Evaluation
Checklist
Discovery ReportTemplate
Management for:
ScheduleCommunication
IssuesRisks
ChangeAcceptance
Quality
Metrics TemplateProject Status
Summary TemplateMonthly ProjectReview Agenda
Mini-AuditChecklist
Full-Audit Checklist
Post ProjectReview Report
Template
Phases
12
Fixed Price Strategy Flow
Definition Discovery Start-up Execution Closure
Supporting Processes/Templates
RFP TemplateRFP Checklist
Fixed Price ChecklistVendor Evaluation
Checklist
Discovery ReportTemplate
Management for:
ScheduleCommunication
IssuesRisks
ChangeAcceptance
Quality
Metrics TemplateProject Status
Summary TemplateMonthly ProjectReview Agenda
Mini-AuditChecklist
Full-Audit Checklist
Post ProjectReview Report
Template
Phases
13
Definition
Plan for Fixed Price
Discovery PhaseAND
Request Fixed Price Bid for
Overall Project
Definitive Enough
(FP Checklist)
Create and
Approve RFP
No
Yes
Define FixedPrice Project
More DefinitionAvailable
No
Yes
Identify and
DistributeRFP to Vendors
DevelopEvaluation
Criteria
Vendor Questions
And Answers
Receive And
Evaluate Responses
SelectVendor(s)
14
Fixed Price Strategy Flow
Definition Discovery Start-up Execution Closure
Supporting Processes/Templates
RFP TemplateRFP Checklist
Fixed Price ChecklistVendor Evaluation
Checklist
Discovery ReportTemplate
Management for:
ScheduleCommunication
IssuesRisks
ChangeAcceptance
Quality
Metrics TemplateProject Status
Summary TemplateMonthly ProjectReview Agenda
Mini-AuditChecklist
Full-Audit Checklist
Post ProjectReview Report
Template
Phases
15
Discovery
• PEEL BACK THE ONION… Give the vendor an opportunity to address Risks/Assumptions/Concerns…
• Three Sessions
– Management Sessions
• Identify and confirm the Organization, Management Approach, Scope of Effort, Critical Success Factors
– Operational Sessions
• Designed to help the Vendor understand how all the pieces fit together… big picture
• Understand the technical characteristics of the environment
– User Sessions
• Confirm the information provided by IS and highlight any discrepancies for clarification and discussion
• Define business expectations and requirements
• Understand the interfaces between the business and IS groups
16
Discovery (continued)
• Wrap-up Sessions And Deliverables
– Revised Fixed Price Proposal
• Fully defined in/out of Scope
• Defined Critical Success Factors
• Technical Approach
– Revised Schedule
• Benefit… Evaluating Your Comfort Level
• Decision Time
– Move forward or re-bid
17
Fixed Price Strategy Flow
Definition Discovery Start-up Execution Closure
Supporting Processes/Templates
RFP TemplateRFP Checklist
Fixed Price ChecklistVendor Evaluation
Checklist
Discovery ReportTemplate
Management for:
ScheduleCommunication
IssuesRisks
ChangeAcceptance
Quality
Metrics TemplateProject Status
Summary TemplateMonthly ProjectReview Agenda
Mini-AuditChecklist
Full-Audit Checklist
Post ProjectReview Report
Template
Phases
18
The Traditional Project Triangle
Schedule
CostScope
19
Start-up… Defining The Box
WHO
HOW
WHEN
WHAT
Roles and Responsibility
Scope
and
Critical Success Factors
Schedule
Technical And
Management Approach
Statement of Work
20
Start-up… Schedule Management
• Best Practice: 90 Day Projects
• Project Plans Often Do Not Reflect Deliverables
– Fixed Price Projects are tied to deliverables
– Everything should roll-up to a deliverable
– Create Deliverable Based Project Plans
• Percent Complete
– 90/10 rule: First 90% of project on track… last 10% takes forever
– Don’t use as driver of status
• Estimate to Complete
– Estimate remainder of each task each week
– Information can raise potential problems with Basis of Estimate (BOE)
– Always have an accurate snapshot
21
Start-up… Communications Management
• Details ALL Regularly Scheduled Reports And Meetings
• Should Include The Following:
– Document/Report name
– Recipient
– Purpose/Description
– Process
– Person responsible
– Frequency
• Story
22
Start-up… Issue vs. Risk
• The Difference
– Issue… already impacting the cost, time or quality
– Risk… POTENTIAL negative impact to project
• Reality… Very little Time Spent On Risk!!!
23
Start-up… Issue Management
• Anyone Can Raise An Issue
• Issue log Should Include:
– Description
– Impact
– Initiator
– Date Originated
– OWNER
– Updates
– Final Resolution
• Review Log Weekly
• Closed Only After Initiator is Comfortable With Resolution
24
Start-up… Risk Management
• Best Practice… Communicate Known Risks Early
• Four Steps
1. Identify Risk
2. Prioritize Risk
– Probability of risk happening
– Impact of risk
– Focus… most likely to happen with biggest impact
3. Define proactive mitigation strategies/actions
4. Monitor progress of the mitigation actions weekly
• Result: Active Management of Shared Risks by ALL Parties
25
Start-up… Change Management
• Three Kinds of Change Request
– Compliance
• Change to something approved… the “Box”
• Example: Additional requirements
– Non-Compliance
• Something did not happen as planned
• Example: SME’s not available as planned
– Informational
• Reset or change… no impact to schedules/cost
• Example: Organizational change
26
Start-up… Change Management (continued)
• Reality… Change Will Happen
– Recommend Change Budget (20%)
• Common Mistakes
– Can not have change without a foundation… scope creep
– No CONSISTENT process on how to handle
• Process Should:
– Identify who can initiate… anyone!!!
– Define approval authorization
– Define timely decision-making
– Define escalation
– Make clear that NO WORK UNTIL APPROVED!!!!
27
Start-up… Acceptance Management
• Defined Deliverables… Building Blocks That Move Project Forward
• Key Components:
– Define acceptance criteria… pictures are worth 1,000 words
– Define approval authority
– Written approval only… no verbal
– Define acceptance process
• Review, walkthrough, etc
– Define rejection process
– Define timely decision-making
– Define escalation
– EARNED VALUE… Goal of 80% (no more then 20% at risk)
28
The Box is Defined
WHO
HOW
WHEN
WHAT
Roles and Responsibility
Schedule
Technical And
Management Approach
Statement of Work
Scope
and
Critical Success Factors
29
“Once I know where I am to finish, I then know where to start.”
Walt Disney
Author Unknown
“Once all the facts are known… decision making is easy.”
30
Fixed Price Strategy Flow
Definition Discovery Start-up Execution Closure
Supporting Processes/Templates
RFP TemplateRFP Checklist
Fixed Price ChecklistVendor Evaluation
Checklist
Discovery ReportTemplate
Management for:
ScheduleCommunication
IssuesRisks
ChangeAcceptance
Quality
Metrics TemplateProject Status
Summary TemplateMonthly ProjectReview Agenda
Mini-AuditChecklist
Full-Audit Checklist
Post ProjectReview Report
Template
Phases
31
Execution… Project Control and Risk Planning
• Can’t Get Better Until You Accurately Know Where You Are!!!
• Metrics
– Keep very simple and start small
– Rule of thumb: If a collection method must be created… don’t use THE Metric
– Evaluate Trends
• Gather The Facts And Look For Potential Issues… Continuously
– Weekly reporting
– Audits
• Identify Projects That:
– Exhibit poor project performance data
– Exhibit conditions that may lead to dissatisfaction
– Have significant risk
32
Execution… Quality Management
• Three Types
– Initial-Audit
• Within first 30 days
• Review project planning
• Ensures things are done correctly from the beginning
– Mini-Audit
• Ensure project is operating according to standards
• Quarterly throughout project
33
Execution… Quality Management (continued)
• Three Types (continued)
– Full-Audit
• Provide extensive review of project to determine
– What is being done well
– Identify real or potential problems
– Suggest specific corrective actions
– Once a year
34
Fixed Price Strategy Flow
Definition Discovery Start-up Execution Closure
Supporting Processes/Templates
RFP TemplateRFP Checklist
Fixed Price ChecklistVendor Evaluation
Checklist
Discovery ReportTemplate
Management for:
ScheduleCommunication
IssuesRisks
ChangeAcceptance
Quality
Metrics TemplateProject Status
Summary TemplateMonthly ProjectReview Agenda
Mini-AuditChecklist
Full-Audit Checklist
Post ProjectReview Report
Template
Phases
35
Closure
• Achieve Final Sign-off
• Post Project Audit
– Identify what went well and areas of improvement
– Verify all deliverables and Change Control documents officially accepted
– Should be final activity within Project Plan
36
Summary
• Fixed Price Strategy Can Work IF…
– The “Box” is fully defined… everyone on the same page
– Disciplined, Proactive Approach is Practiced
– Willingness to hear and react to both good and bad news
– Communication, Communication, Communication!!!
• Don’t Need A Title To Be A Leader…
– Management… Power OVER people
– Leadership… Power WITH people
QUESTIONS
Office: (727) 938-0067
MooneyConsultingGroup, Inc.M
“Let Our Management Experience Work For You!”
